Forensic auditor chronicles misdeeds at D.F.C.
The tone of the hearings conducted by the Commission of Inquiry into the Development Finance Corporation changed significantly today, as the opening testimony came not from a D.F.C. employee or client, but from an investigator hired to look at the books. News 5’s Janelle Chanona has the story.
Janelle Chanona
“Today Chartered Accountant Mark Hulse took the witness stand to present his draft forensic audit of the Development Finance Corporation. Not surprisingly, Hulse and his team discovered numerous instances of possible conflicts of interest, procedural irregularities and possible illegalities.”
Mark Hulse, Forensic Auditor
“Our review of the Novelo loan indicated many breaches of procedure, protocol, and fiduciary duty. It also indicated conflicts of interest in respect to which Mr. Godfrey, the chairman of the D.F.C. appears to have been a beneficiary through his legal practice and a bank under his control. In our view, this constituted a related party transaction which should have been, but was not, disclosed in the audited financial statements. Further examples of delinquent loans where procedures were breached and conflicts of interest were ignored. Examples include New Millennium Enterprises Limited, Aqua Marine Suites Limited, Print Belize Limited, Royal Palm Limited, Karim Adle, Toledo Free Zone, and those are just a few examples. Most loan files were incomplete and or procedures were not adhered to. By thirty-first December 2004, the total book value of non-performing loans had increased to some Belize one hundred and twenty million dollars.”
“The total injection of capital by G.O.B. between the years 2002 to 2004 by just booking a receivable from G.O.B. and reducing interest and other related cost was one hundred and fifteen point six million dollars. In 2005, G.O.B. provided further support of one hundred and one million dollars.”
Hulse, who also audited the Social Security Board during its Commission of Inquiry, testified that the brunt of the Musa Administration’s aggressive campaign to build thousands of houses as part of their expansion plans for the Belizean economy was borne by the D.F.C. And disturbingly, the housing scheme was apparently used by members of the board for personal benefit.
Mark Hulse
“The San Pedro assets were acquired from Western Caribbean Development, a company owned by Mr. Glenn Godfrey, chairman of the D.F.C. Mr. Courtenay, D.F.C. deputy chairman was the D.F.C. project manager who approved payments to Western Caribbean Properties Limited. Other examples of assets held for resale that give rise to substantial losses are the Los Lagos Housing Project, Indeco Cohune Walk Housing Project, T & D Housing Project, San Pedro Housing Project, Satellite City Housing Project and other smaller housing projects, examples being the San Lorenzo housing project and also the Soy Bean project.”
To compound accusations against Glenn Godfrey, Hulse also testified that in at least two instances, financial entities connected to the former chairman were involved in questionable transactions with the D.F.C.
Mark Hulse
“Interest paid on this loan for five million for five and half months was eight hundred and five thousand dollars, works out to seventeen and a half percent per year. Mr. Glenn Godfrey, the chairman, is a major shareholder of the Alliance Bank Limited.”
“The sum that should have gone to St. James Building Society was nine point one million dollar, a difference of eight million dollars approximately. We have seen no record in the minutes of a board decision by the D.F.C. to absorb costs and retentions on behalf of St. James. St. James Building Society—one of its main shareholders is Mr. Glenn Godfrey, the chairman of the D.F.C. at the time. Of course, we do not know whether he initiated these D.F.C.’s actions.”
But while Hulse testimony was riveting, it was his damning conclusion that dominated today’s hearing.
Mark Hulse
“In my opinion, a number of transactions undertaken by the D.F.C. were not properly approved by the board and indeed could not reasonably been so approved. I respectfully suggest that the commission take legal advice on the question of initiating legal proceedings against members of the board in connection with potential breaches of fiduciary duties and consequent recovery of funds expended in transactions that were ultra vires to the institution of D.F.C. I form the view that the board gave insufficient priority to its responsibilities for financial stability and was not sufficiently involved in ensuring that the system of internal controls was properly maintained. In particular, the board minutes do not provide evidence that the board took responsibility for the preparation of the financial statements and that such financial statements, as they eventually approved, provided a true and correct view as required by the D.F.C. Act. The executive managers appeared to have been usurped in their function to a large extent by certain members of the board. May I repeat that please? The executive managers appeared to have been usurped in their function to a large extent by certain members of the board, particularly Messieurs Godfrey and Courtenay when they were chairman and deputy chairman respectively.”
Janelle Chanona
“The Belize Institute of Management took on a sense of court room drama this afternoon when the day’s second witness, former D.F.C. chairman Omar Espejo showed up with his attorney, Derek Courtenay.”
Derek Courtenay, Attorney
“With the permission of the Chair, I would ask that you recognise that I wish to represent Mr. Espejo during these proceedings.”
Bolstered by the presence of his attorney, Espejo, a banker for more than thirty-four years, attempted to answer the commission’s questions regarding the operations of the D.F.C. during his tenure. Espejo says he was appointed Chairman of the D.F.C. in January 2003, by Prime Minister Said Musa and then Minister of Finance Ralph Fonseca. It was a position he held until March thirty-first 2005. Today he serves as Managing Director of the Alliance Bank.
Herbert Lord, Co-Chair, Commission of Inquiry
“Swear that the evidence that the evidence you will give today before the Commission of Inquiry will be the truth, the whole truth, nothing but the truth so help you God.”
(Espejo nods)
Herbert Lord
“You can have a seat.”
But as the questioning proceeded it became clear that Espejo has put his days at the D.F.C. squarely behind him as he could not recall many of the details that were asked of him by the commissioners, especially when it came to the now infamous fifty million dollar Belize Bank certificate of deposit which the D.F.C. assumed, but the Government collected. Espejo says he was out of the country when the board approved the transaction.
Merlene Bailey Martinez, Co-Chair, Commission of Inquiry
“Did you see that resolution coming out of that meeting.”
Omar Espejo, Former D.F.C. Chairman
“Ahm … I don’t recall, but it’s quite possible I would have seen it.”
Merlene Bailey Martinez
“We need to be very specific as to what you saw and what you didn’t see, what you did and what didn’t do. This is a very critical issue.”
Omar Espejo
“Do bear in mind you are asking me to recollect something—there were hundreds of documents that I saw whilst I was at the D.F.C.”
Merlene Bailey Martinez
“How many for fifty million dollars?”
Omar Espejo
“Well, that would be just the one. “
Merlene Bailey Martinez
“Just the one. How many that would end up in an international report that assesses the financial viability of the Government of Belize? One transaction?”
Omar Espejo
“That was transaction for the D.F.C. was a transaction between the D.F.C. and its shareholder. The purposes were … I was not privy to so.”
Merlene Bailey Martinez
“We need to find out who attended this meeting because we have interviewed other directors and we have yet to identified someone who actually attended this meeting Mr. Espejo.”
Herbert Lord
“That’s why I call it a phantom meeting.”
Merlene Bailey Martinez
“Mr. Espejo, if the minutes of the meeting were not signed or ratified, what was the basis on which you signed that agreement with the Belize Bank and when did you do so?”
Omar Espejo
“Ahm, but as I mentioned, the minutes, not the minutes, but the transaction itself, was ratified.”
Merlene Bailey Martinez
“What did you see to confirm that the Belize Bank had actually carried out your instructions?”
Omar Espejo
“I can’t recollect that there was a document sent to me. It was merely a booking of an entry between the Ministry of Finance in their records and the D.F.C. in their records.”
Responding to earlier testimony that the staff of the D.F.C. was so overwhelmed by the securitisation process that numerous errors were generated, Espejo says everyone was on a learning curve.
Omar Espejo
“That issue would have come to the attention of the board when the auditors sent the letter from the audit. And obviously at that time we would have them go back and work it out and like I said, that would have been the training in it of itself. What happened before that, I can’t comment. Whether they were given preparatory training in audit or bookkeeping for that kind of training, I don’t know.”
Herbert Lord
“I have seen reports were the auditors have said that they’ve made recommendations, they’ve received no reply, it was ignored by the board, nothing was done.”
Omar Espejo
“It could not have been ignored if at the end …”
Herbert Lord
“They termed it as though it was ignored by the board, they are not saying it was directly.”
Omar Espejo
“Well, the process is that if you don’t resolve those issues, the auditors will not sign off on the document, so obviously there was …”
Merlene Bailey Martinez
“That’s the way it should be.” (sighs loudly) “Couple of specifics Mr. Espejo and I’m not sure about the fruitfulness of this discussion at all. I’m questioning it, the fruitfulness because we have not gotten any information from you that would add to anything that we are doing here, because key information that we are asking for, you either do not recollect or you say it would have been or it should have been. It’s difficult to get a really straightforward answer.”
Janelle Chanona
“The D.F.C. Commission of Inquiry continues tomorrow with testimony from two former directors of the D.F.C. and a former Financial Secretary of the Government of Belize. Reporting for News Five, I am Janelle Chanona.”
As we noted in our story, forensic auditor Mark Hulse presented a draft of his report to the commission on Wednesday night. The final version of his findings is expected to be submitted within the next two weeks.
